The nuclear option - what are the true costs?

Today we
have the announcement by DECC that EdF will construct the first of
the new generation of nuclear plants in the UK. Should we welcome
this decision?

The contract for this project will provide an
electricity price of £92.50/MWh linked to inflation. By comparison
the strike price for onshore wind is at £100/MWh. This makes
nuclear look cost effective. However the devil is in the
detail.

Ed Davey has spoken publicly about the LibDem
position that there will be no public support for nuclear. That
statement was subsequently modified to read "unless similar support
is provided to other types of low-carbon
generation."

When we look further into the "Notes to editors"
on the official DECC press release we find a great variety of
wriggle room within the contract. Firstly the contract is for a
period of 35 years. The proposed contracts for difference for
renewable energy are for a period of 15 years. This is not "similar
support".

The notes also refer to the possibility of
revising the strike price: "Arrangements whereby the Strike Price
could be adjusted, upwards or downwards, in relation to operational
and certain other costs (including balancing and transmission
charges and business rates) at certain fixed points, and in
relation to certain future changes in law (including in respect of
specific nuclear taxes, and uranium and generation taxes)." Again
there is no similar support for renewable
energy.

We also read "Protection would be provided for
any increases in nuclear insurance costs as a result of withdrawal
of HMG (UK
Government)cover or in certain circumstances where market
cover in the nuclear insurance market is no longer available, with
compensation limited to the cost of additional capital required to
self-insure."

This one is pretty astounding - the UK government
is providing insurance - that is a real cost to the taxpayer and
while this is not reflected in the strike price it is a huge public
subsidy. A study by Versicherungsforen Leipzig GmbH estimated the
maximum cost of a nuclear disaster at £5.2 trillion. Calculating a
premium on this event is very difficult. Effectively the UK
government is providing an additional subsidy of between £100/MWh
and £2,000/MWh depending on the probability of an event and the
timescale. The Versicherungsforen Leipzig report concludes that
nuclear disasters are not insurable.

Furthermore as we have seen at the
Fukushima Daiichi plant disaster the Japanese
government had to step in to fund the recovery operation. Clean up
and decommissioning is likely to cost up to £200 billion. No
commercial insurer can possibly insure a nuclear plant. Again, this
a public subsidy and is not at all similar to the support given for
a renewable energy power station.

The investors also seem to be protected from
"political risk". The notes include provision for "Compensation to
the Hinkley Point C investors for their expected equity return
would be payable in the event of a Government directed shut down of
Hinkley Point C other than for reasons of health, safety, security,
environmental, transport or safeguards concerns. The arrangements
include the right to transfer to government, and for government to
call for the transfer to it of, the project company which owns
Hinkley Point C in the event of a shutdown covered by these
provisions." Again that is a huge public
subsidy.

We also learn: "HM Treasury announced on 27 June
2013 that Hinkley Point C had been pre-qualified for consideration
for a UK Guarantee. EdF and HM Treasury are in discussions
regarding the terms of a potential UK Guarantee. Any risks borne by
HM Treasury by providing such a Guarantee would be paid for by NNBG
and at commercial rates. The UK Guarantees Scheme is open to all
eligible infrastructure projects, including those in the renewable
energy sector." Note NNBG
is the joint venture developing the project. From a quick
check on the government web site the outline of the guarantee is
very powerful: "Government support will take the form of an
unconditional and irrevocable financial guarantee (the UK
Guarantee) of scheduled principal and interest in favour of a
lender to a UK infrastructure project." While it is clear that such
a UK guarantee is available to a variety of projects - I am not
aware of a renewable project getting this
guarantee.

Finally there are a few other important details
like security and long term waste disposal. The press release is
silent on these matters. I am not aware of any renewable plants
requiring the extensive support and security that will be required
for this project throughout it lifetime. The taxpayer will bear
this cost not just for the operational lifetime but until the site
is restored to its original use.

The matter of high level waste also needs to be
addressed: we are spending over £2 billion per year on the Nuclear
Decommissioning Authority. We still do not have a solution for the
high-level waste generated from the existing nuclear programme,
never mind this new programme. The current Geological Disposal
Facility does not exist and will cost anywhere between £4b and
£12b. Some estimates put the cost for constructing the Geological
Disposal Facility at upwards of £50b. The Nuclear Decommissioning
Authority state; "On top of this there are additional costs to
support and maintain the infrastructure and emplacement facilities
and extra equipment required." The public subsidy paid by the
taxpayer will go on and on.

Overall I have no problem with the construction
of a new nuclear plant in the UK. My real challenge is the total
lack of transparency and fudging of the actual costs and long-term
implications for this and future generations. Moving costs from the
electricity bill payer to the tax-payer is obscuring the real costs
of nuclear. One thing that renewable energy has over nuclear is
that the costs are known precisely. Renewable energy does not carry
the environmental and legacy issues of the nuclear
industry.

I am further disappointed in that we have failed
to bring true industrial innovation to this project. The technology
is French, the turbines are French the financing is from France and
China. Of course we will have lots of new construction jobs but the
innovation stops there. It may remind you of the wind industry: all
large scale turbines are imported from mainly Danish and German
manufacturers.

Come on UK Government - we have a nascent marine
energy industry that is severely under-capitalised. If the
government diverted the Nuclear Decommissioning Authority budget
for just three months to the marine energy industry it would truly
revolutionise our energy options.